AUD/NZD Looks Stretched At The Lows

Although the trend points lower, mean reversion appears likely over the near-term according to some indications.


  • Z-score, consecutive days and lower Keltner-band test suggest mean-reversion
  • Potential for a rebound towards 1.0370 before heading lower
  • Trend remains bearish below 1.0490

Granted, AUD/NZD may not be a go-to currency choice for some, yet its bearish trend structure continues to print lower highs and lower lows. Since breaking beneath 1.0370, it’s trading at levels not seen since January’s flash-crash and could be headed for the September 2016 low at 1.0238. However, a few indications point towards a mean reversion ahead of its next leg lower.

Today’s low has tested the lower Keltner band, it’s Z-score (compared with a 20-day average) is below -2 and we’re currently within its 6th consecutive bearish day. It’s worth remembering that indications only ‘indicate’ but layering them together congruently can improve the probability of their effectiveness overall, so-long as they’re not simply repeating the same information. 



The Z-score is far from perfect as, just like an RSI, it can spend extended periods in overbought or oversold conditions. However, we can see in recent history that troughs below 2 have coincided roughly with a retracement. The Keltner band becomes more reliable the further prices trade outside of it, yet here we note a lack of momentum on bearish days over recent session, which makes a downside extended move appear less probable over the near-term.

Furthermore, we’re now within its 6th consecutive bearish session, an event which has only occurred 0.8% of days since data from 2002. We can clearly see on the distribution that the greater the consecutive run, the probability of the occurrence decreases, which means the probability of mean reversion becomes greater. 




Technically, we see potential for a rebound towards 1.0370. A counter-trend trader could use 1.0370 as an interim target, whereas a trend trader could consider bearish setups below 1.0370. If bearish momentum returns beneath this key level, it could be headed for the September low around 1.0238.  Whereas a break above 1.0370 brings the 20-day average into focus (this is ‘mean’ reversion, after all). However, keep in mind the dominant trend remains bearish beneath 1.0490.




Disclaimer: GAIN Capital UK Limited (trading as "Forex.com") is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, Forex.com does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by Forex.com or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although Forex.com is not specifically prevented from dealing before providing this material, Forex.com does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.